International accounts cover the closely related and integrated balance of payments and international investment position statistics. Diagram 30.1 presents the broad structure and relationship of these statistics.

Australia's balance of payments provides a statistical statement that systematically summarises the economic transactions between residents of Australia and residents of other countries. Residents, who may be people or businesses, need not be Australian nationals. Transactions cover the provision (changes in ownership) of goods, services, income, financial claims on and liabilities to the rest of the world, and transfers (such as gifts) without anything provided in exchange.

Australia's international investment position is a balance sheet of the stock of foreign financial assets and liabilities of Australian residents. International investment statistics integrate the balance sheet positions at two points in time with information on increases and decreases in the levels of these assets and liabilities as a result of the changes due to transactions (investment flows, including reinvestment of earnings) as shown in the financial account of the balance of payments, together with the other changes that affect either the value of the stock (price, exchange rate) or the volume (other adjustments) of the stock of financial assets and liabilities.

30.1 RELATIONSHIP BETWEEN THE BALANCE OF PAYMENTS AND INTERNATIONAL INVESTMENT POSITION STATEMENTS

Australia's international accounts statistics, which cover both the balance of payments and the international investment position, are compiled in accordance with international statistical standards as defined in the fifth edition of the International Monetary Fund's Balance of Payments Manual (BPM5). The concepts of residency, transactions, valuation and time of recording are common to the balance of payments and international investment position statistics.

The balance of payments accounts, which present systematically the economic transactions between Australia and the rest of the world, incorporate four types of economic transactions. The first involves the provision of real resources, that is, transactions in goods, services and income. The second involves the provision of financial resources, that is, foreign financial assets and liabilities. The third covers those one-sided transactions of a current nature (described as current transfers) that are offsets to transactions in current real or financial resources undertaken without an exchange. Current resources are not associated with, nor finance, fixed assets. For example, famine relief, whether in cash or in kind, would have its offset in current transfers. The fourth type is capital transfers that offset transactions undertaken, without exchange, in fixed assets or in their financing (such as development aid). For example, migrants' funds represent the shift of the migrants' net worth to or from Australia, and are classified as capital transfers.

The first and third of these types of transactions make up the current account, while the second type makes up the financial account. The fourth type (capital transfers), together with a minor item for the acquisition and disposal of non-produced, non-financial assets (such as patents), make up the capital account.

The double entry accounting system is used for recording balance of payments transactions. Under this system, credit entries, which are shown with no arithmetic sign, are used to record the provision of real or financial resources. Credit entries are therefore required for exports of goods and services, and for income earned by residents (a return for providing the use of financial capital to non-residents, or for providing the labour of Australian residents). Credit entries are also required for providing financial resources to the rest of the world, either as new liabilities (such as issuing bonds), or through returning existing foreign assets (such as selling foreign equity securities to non-residents). Therefore, any credit entry in the financial account will reflect either an increase in Australia's foreign liabilities (more foreign debt or foreign ownership), or a decrease in Australia's foreign financial assets (such as a run-down in foreign exchange reserves).

Conversely, debit entries, which are identified by a minus sign (-), are used to record the provision by the rest of the world of real or financial resources to Australia, and are shown against imports of goods and services, income earned from Australia by non-residents, and financial transactions involving either an increase in foreign financial assets or a decrease in foreign liabilities.

Transactions in a double entry accounting system are reflected in pairs of equal credit and debit entries. For example, an export transaction for which payment is received through the banking system involves a credit entry for providing the good to a non-resident and a debit entry for being provided with foreign exchange assets due as payment for the export. Any entries that are not automatically paired in a transaction, that is, for which there is no 'quid pro quo', are matched by special offsetting entries. Such offsetting entries are made in the categories 'current transfers' (when offsetting the provision of current resources such as food for famine relief) and 'capital transfers' (when offsetting the provision of capital resources such as development aid to build a new dam).

In principle, the net sum of all credit and debit entries is zero. In practice, some transactions are not measured accurately (errors), while others are not measured at all (omissions). Equality between the sums of the credit and debit entries is then brought about by the inclusion of a 'net errors and omissions' item which balances the accounts.

Transactions and other changes should be valued in the balance of payments at market prices. However, for practical reasons, transactions are generally valued in the statistics at transaction prices as this basis provides the closest practical approximation to the market price principle.

Transactions and other changes recorded in the balance of payments should be recorded at the time of change of ownership. For current account transactions, this occurs when ownership of goods changes, or services are provided. Investment income is recorded on a full accrual basis, that is, when it is earned. Reinvested earnings are calculated for the earnings of the period of account, using current replacement cost estimates of depreciation and excluding holding gains and losses. Current and capital transfers should be recorded when the goods, services, cash, etc., to which they are offsets, change ownership. Those transfers, such as taxes and fines, which are imposed by one party on another, should ideally be recorded at the time of occurrence of the underlying transactions or other flows or events that give rise to the liability to pay. For financial account transactions, the time of recording is at the change of ownership of the financial claims, which by convention is the time at which transactions are entered in the books of the transactors.

In practice, the nature of the available data sources is such that the time of recording of transactions will often differ from the time of change of ownership. Where practical, timing adjustments are made for transactions to ensure that they are recorded in the time period in which change of ownership occurs.

International investment position statistics provide information on the levels (stock) of Australia's foreign financial assets and liabilities. The investment position at the end of a period reflects the foreign financial asset and liability positions at the start of the period, and the financial transactions (investment flows) from the balance of payments which increase or decrease these assets and liabilities, together with the non-transaction changes due to exchange rate effects, other price effects and changes in the volume of these assets and liabilities that are not due to transactions (such as debt write-off).

While the international investment position statistics form an integral part of Australia's balance of payments (diagram 30.1), they are also useful in their own right, for example, in determining the impact of foreign investment policies and the level of Australia's foreign assets and liabilities, including foreign debt. They are also useful when analysing the behaviour of financial markets.

As with the balance of payments, market price is the principal method of valuation in international investment position statistics, and financial assets and liabilities are recognised on a change of ownership basis, that is, at the time when the foreign financial asset or liability is acquired, sold, repaid or otherwise disposed of. By convention, this is generally taken to be the time at which the event is recorded in the books.

Classifications

In the following tables, estimates are presented of the current, capital and financial accounts of Australia's balance of payments. Current and capital account transactions are generally recorded gross. This means that, for each item in the current and capital accounts, the credit entries are recorded separately from the debit entries. For example, goods credits are shown separately from goods debits. For each item in the financial account, however, debit and credit transactions are combined to produce a single result for the item which may be either a net credit or a net debit. For example, in a given period, non-resident purchases of shares issued by companies in Australia (credit) are netted against sales of Australian shares to residents by non-residents (debit) and the net result is recorded in the financial account as either a net credit or a net debit.

The current account records transactions between Australian residents and non-residents in goods, services, income and current transfers. Goods are classified into five main components: general merchandise; goods for processing; goods procured in ports by carriers; repairs on goods; and non-monetary gold. Changes of ownership from residents to non-residents are recorded as credits (also referred to as exports), and changes from non-residents to residents are recorded as debits (also referred to as imports). Services, comprising 11 primary components, cover services provided by Australian residents to non-residents (credits) and by non-residents to residents (debits), together with transactions in a few types of goods (e.g. goods purchased by travellers). Income, comprising investment income (e.g. dividends and interest) and compensation of employees (e.g. wages), covers income earned by Australian residents from non-residents (credits) or earned by non-residents from residents (debits). Current transfers cover the offsetting entries required when resources are provided, without something of economic value being received in return. When non-residents provide something to Australian residents, offsetting credits are required; when residents provide resources to non-residents, offsetting debits are required. General government transfers (e.g. official foreign aid) are distinguished from transfers by other sectors.

The capital account covers capital transfers (such as migrants' funds), distinguished between general government and other sectors, and the acquisition/disposal of non-produced, non-financial assets.

The financial account shows transactions in foreign financial assets and liabilities. The primary split is by functional type of capital (direct investment, portfolio investment, financial derivatives, other investment and reserve assets) further split into assets and liabilities (where appropriate). Within the asset and liability categories, details are presented of instruments of investment and resident sectors (for other than direct investment), and in some cases the contractual maturity of the instruments used.

The primary distinction used in international investment position statistics is between assets and liabilities. Assets primarily represent Australian investment abroad, and liabilities primarily represent foreign investment in Australia. The difference between the two represents the net international investment position (graph 30.8 and table 30.9). Australian investment abroad refers to the stock of foreign financial assets owned by Australian residents, after netting off any liabilities of Australian direct investors to their direct investment enterprises abroad. Conversely, foreign investment in Australia refers to the stock of financial assets in Australia owned by non-residents, after netting off any claims of Australian direct investment enterprises on their foreign direct investors. The first breakdown below this asset/liability dichotomy is by functional type of capital, with details of the instruments of investment (table 30.11), the resident sectors and contractual maturities involved.

While many types of instruments of investment can be identified, similar instruments are combined for analytical reasons and ease of reporting. Some of those instruments are:

Equity capital - which includes ordinary and participating preference shares, units in trusts and net equity in branches.

Reinvestment of earnings of direct investors - which refers to income retained within the enterprise from after-tax profits that is attributable to direct investors.

Debt securities - which include longer term, generally tradable security instruments such as bonds and debentures, with a contractual maturity of more than one year after issue, together with money market instruments (e.g. bills, commercial finance paper, negotiable certificates of deposit) with a contractual maturity of one year or less.

Trade credits - which cover the direct extension by suppliers and buyers for goods and services, including advances for work in progress or to be undertaken.

Loans - which cover the direct lending of funds either without a security evidencing the transaction, or with non-negotiable documentation. They include financial leases.

Deposits - which comprise both transferable and other deposits.

Other assets and liabilities - which consist of miscellaneous accounts in respect of interest, dividends, etc.

Statistical overview

As shown in table 30.2, the balance on current account for 2003-04 was a deficit of $47.4b, an increase of $7.1b (18%) on the previous year. The deficit on goods and services was $24.1b, an increase of $5.5b on the 2002-03 deficit of $18.6b. The main contributing factors were the decrease in goods credits of $6.8b, down from $116.0b in 2002-03 to $109.2b in 2003-04, and the $1.5b increase in services debits, up from $32.9b in 2002-03 to $34.4b in 2003-04. The net goods deficit rose by $5.4b, the net services deficit by $0.1b and the net income deficit by $1.8b on the previous year.

The surplus on capital account increased by $0.2b (21%) to $1.2b in 2003-04.

The balance on financial account recorded a net inflow of $47.1b, up $6.9b (17%) on the previous year. Direct investment recorded a net outflow of $14.8b, a $24.6b turnaround on the net inflow of $9.8b in 2002-03. Contributing to the net outflow were a rise in Australian direct investment abroad of $16.2b to $24.4b and a fall of $8.3b in the net inflow of direct investment into Australia. The net inflow on portfolio investment increased $57.5b, while other investment recorded a turnaround of $27.4b to record a net outflow of $11.3b in 2003-04. Reserve assets fell $0.5b, while financial derivatives recorded a turnaround of $0.9b to be $0.9b in 2003-04.

30.2 BALANCE OF PAYMENTS, Summary

1998-99

1999-2000

2000-01

2001-02

2002-03

2003-04

$m

$m

$m

$m

$m

$m

Current account

-33,610

-32,620

-18,021

-20,550

-40,322

-47,427

Goods and services

-14,431

-14,589

649

-1,233

-18,639

-24,097

Credits

112,025

126,222

153,854

153,340

148,530

143,178

Debits

-126,456

-140,811

-153,205

-154,573

-167,169

-167,275

Goods

-12,647

-13,145

-217

-852

-18,317

-23,688

Credits

85,783

97,665

120,307

121,090

115,961

109,190

Debits

-98,430

-110,810

-120,524

-121,942

-134,278

-132,878

Services

-1,784

-1,444

866

-381

-322

-409

Credits

26,242

28,557

33,547

32,250

32,569

33,988

Debits

-28,026

-30,001

-32,681

-32,631

-32,891

-34,397

Income

-18,430

-18,249

-18,702

-19,300

-21,469

-23,301

Credits

10,288

13,769

16,278

15,672

15,310

15,831

Debits

-28,718

-32,018

-34,980

-34,972

-36,779

-39,132

Current transfers

-749

218

32

-17

-214

-29

Credits

4,498

4,625

4,453

4,280

4,233

4,273

Debits

-5,247

-4,407

-4,421

-4,297

-4,447

-4,302

Capital and financial account

31,281

32,112

17,354

21,907

41,140

48,263

Capital account

1,167

1,053

1,109

1,016

991

1,199

Capital transfers

1,186

1,136

1,182

1,186

1,103

1,230

Credits

2,197

2,335

2,442

2,543

2,404

2,629

Debits

-1,011

-1,199

-1,260

-1,357

-1,301

-1,399

Net acquisition/disposal of non-produced, non-financial assets

-19

-83

-73

-170

-112

-31

Financial account

30,114

31,059

16,245

20,891

40,149

47,062

Direct investment

4,747

9,804

-461

186

9,795

-14,766

Abroad

-3,253

-3,343

-14,353

-21,195

-8,156

-24,377

In Australia

8,000

13,147

13,892

21,381

17,951

9,612

Portfolio investment

6,455

13,033

19,404

11,207

19,899

77,366

Financial derivatives

2,748

470

-538

773

-63

881

Other investment

16,558

10,374

6,720

7,948

16,138

-11,291

Reserve assets

-394

-2,622

-8,880

777

-5,620

-5,127

Net errors and omissions

2,329

508

667

-1,357

-818

-836

Source: Balance of Payments and International Investment Position, Australia (5302.0).

Graph 30.3 illustrates the differing influences of the trade balance and the net income deficit on the balance on current account. The net income deficit rose from $9.2 in 1987-88 to $23.3b in 2003-04. The underlying level of net income continues to drive the level and direction of the current account deficit, as Australia continues to service its external liabilities. However, the trade deficit has fluctuated quite significantly over the past 16 years, moving from a deficit of $2.3b in 1987-88 to a deficit of $24.1b in 2003-04.

Table 30.4 shows the annual levels of Australia's official reserve assets and both the end of year and period average exchange rates for the major currencies, special drawing rights, and the trade weighted index.

30.4 RESERVE ASSETS AND EXCHANGE RATES

1998-99

1999-2000

2000-01

2001-02

2002-03

2003-04

RESERVE ASSETS(a) ($m)

Total reserve assets

-23,954

-27,948

-37,951

-37,435

-40,760

-50,343

Monetary gold

-1,013

-1,233

-1,367

-1,445

-1,329

-1,473

Special drawing rights

-88

-141

-197

-216

-226

-256

Reserve position in IMF

-2,338

-2,225

-2,412

-2,992

-3,185

-2,497

Foreign exchange

-20,515

-24,349

-33,975

-32,782

-36,020

-46,117

Currency and deposits

-7,971

-9,148

-11,340

-11,761

-10,254

-23,420

Securities

-12,544

-15,143

-22,562

-21,137

-25,758

-22,695

Financial derivatives (net)

n.a.

-58

-73

116

-8

-2

EXCHANGE RATES

End of period(a)

United States dollar

0.6596

0.5986

0.5075

0.5648

0.6674

0.6889

United Kingdom pound

0.4188

0.3941

0.3603

0.3700

0.4038

0.3815

Euro

0.6379

0.6282

0.6002

0.5715

0.5840

0.5702

Japanese yen

79.66

63.19

62.94

67.48

79.99

74.82

Special drawing right

0.4932

0.4481

0.4076

0.4277

0.4761

0.4694

Period average(b)

United States dollar

0.6276

0.6292

0.5379

0.5239

0.5847

0.7136

United Kingdom pound

0.3824

0.3947

0.3704

0.3632

0.3685

0.4102

Euro

. .

. .

0.6023

0.5850

0.5577

0.5981

Japanese yen

77.81

67.91

61.49

66.10

70.01

78.91

Special drawing right

0.4589

0.4642

0.4177

0.4135

0.4313

0.4933

TRADE-WEIGHTED INDEX OF VALUE OF THE AUSTRALIAN DOLLAR(c)

End of period(a)

58.4

53.3

49.7

52.3

59.4

59.1

Period average(b)

56.0

55.2

50.3

50.7

53.5

61.5

(a) At 30 June.(b) Exchange rates and the trade-weighted index are provided by the Reserve bank of Australia in respect of each trading day. Period averages are derived from these rates.(c) May 1970 = 100.0. The trade weighted index is reweighted annually and on special occasions as required.

Source: Balance of Payments and International Investment Position, Australia (5302.0).

International trade in goods and services (balance of payments basis)

Australia's international trade in goods and services for the six years to 2003-04 is shown in tables 30.5 (exports or credits) and 30.6 (imports or debits). The tables provide both current price and chain volume measures.

The components of merchandise goods shown in tables 30.5 and 30.6 are defined in terms of groupings of items in the United Nations Broad Economic Categories (BEC) for credits, and a version of the BEC for Balance of Payments purposes modified for debits.

Chain volume measures of exports and imports remove the effects of price changes. They provide measures, in dollar values, which indicate changes in the actual volume of exports and imports.

The current price value of a transaction may be expressed conceptually as the product of a price and quantity. The value of the transaction in chain volume measures may then be thought of as being derived by substituting, for the current price, the corresponding price in the chosen reference year.

There are, however, many transactions recorded in statistics of international trade in goods and services for which it is not possible to apply such an approach. In such cases it is necessary to make assumptions and approximations (e.g. revaluing by means of the price index which is considered to be most closely related to the commodity involved). The published chain volume measures should be viewed in this light. For more information on chain volume measures refer to Information Paper: Australian National Accounts, Introduction of Chain Volume and Price Indexes (5248.0).

In current price terms the balance on goods and services recorded a deficit of $24.1b in 2003-04, an increase of $5.5b (29%) on the $18.6b deficit recorded in 2002-03. Between these two years, goods and services credits fell $5.4b to $143.2b (down 4%) while debits rose by $0.1b to $167.3b (up 0.1%).

Over the same period goods credits fell $6.8b (6%) to $109.2b, with rural goods falling $1.0b and non-rural goods down by $5.0b. Goods debits fell by $1.4b (1%) to $132.9b. Consumption goods rose $1.7b, capital goods rose $0.4b, while intermediate and other goods fell $3.0b. Contributing to the fall in the intermediate and other goods were imports of parts for transport equipment, down $0.7b to $6.6b, and other goods down $0.6b to $5.1b in 2003-04.

More detailed information on exports and imports of goods, on a merchandise trade basis without adjustment for balance of payments purposes and trade in services, are shown later in this chapter.

30.5 GOODS AND SERVICES CREDITS

1998-99

1999-2000

2000-01

2001-02

2002-03

2003-04

$m

$m

$m

$m

$m

$m

AT CURRENT PRICES

Goods and services credits

112,025

126,222

153,854

153,340

148,530

143,178

Goods credits

85,783

97,665

120,307

121,090

115,961

109,190

General merchandise

78,323

90,110

112,897

113,471

107,269

101,231

Rural goods

21,862

23,617

29,164

30,085

25,484

24,473

Meat and meat preparations

4,008

4,467

5,796

6,246

5,655

5,752

Cereal grains and cereal preparations

5,046

4,941

5,937

6,481

4,487

5,087

Wool and sheepskins

2,583

2,963

3,897

3,687

3,545

2,791

Other rural

10,225

11,246

13,534

13,671

11,797

10,843

Non-rural goods

56,461

66,493

83,733

83,386

81,785

76,758

Metal ores and minerals

11,037

11,760

15,205

14,774

14,523

14,732

Coal, coke and briquettes

9,288

8,336

10,844

13,430

11,987

10,918

Other mineral fuels

4,461

9,082

13,464

10,940

11,049

8,758

Metals (excl. non-monetary gold)

6,984

8,810

10,146

9,650

8,711

7,765

Machinery

6,569

7,133

8,797

7,999

7,362

6,832

Transport equipment

3,343

4,597

5,041

5,686

6,273

5,175

Other manufactures

10,273

11,539

13,530

13,758

13,485

13,335

Other non-rural (incl. sugar)

4,506

5,236

6,706

7,149

8,395

9,243

Beverages

1,176

1,515

1,931

2,287

2,605

2,620

Sugar, sugar preparations and honey

1,472

1,229

1,330

1,610

1,363

np

Other

1,858

2,492

3,445

3,252

4,427

np

Other goods

7,460

7,555

7,410

7,619

8,692

7,959

Services credits

26,242

28,557

33,547

32,250

32,569

33,988

CHAIN VOLUME MEASURES(a)(b)

Goods and services credits

128,300

140,599

150,925

149,333

148,530

149,897

Goods credits

98,510

109,042

115,583

116,200

115,961

116,569

General merchandise

89,405

99,781

107,402

108,246

107,269

108,318

Rural goods

26,203

28,866

30,274

29,222

25,484

26,513

Meat and meat preparations

5,057

5,160

5,835

5,591

5,654

5,415

Cereal grains and cereal preparations

6,771

6,757

6,485

6,596

4,487

6,081

Wool and sheepskins

4,145

4,862

5,076

4,426

3,545

3,618

Other rural

10,716

12,499

13,207

12,844

11,796

11,397

Non-rural goods

63,489

71,214

77,349

79,107

81,785

81,806

Metal ores and minerals

11,831

12,100

13,231

13,737

14,523

15,060

Coal, coke and briquettes

9,739

10,197

11,176

11,451

11,987

12,568

Other mineral fuels

9,442

11,164

12,005

11,801

11,049

9,556

Metals (excl. non-monetary gold)

7,895

8,681

8,746

9,364

8,711

7,409

Machinery

5,832

6,591

7,950

7,459

7,362

7,562

Transport equipment

3,751

5,116

5,039

5,472

6,273

5,654

Other manufactures

10,272

11,798

12,952

13,215

13,486

14,174

Other non-rural (incl. sugar)

4,671

5,784

6,394

6,776

8,395

9,823

Beverages

1,159

1,546

1,840

2,172

2,605

2,852

Sugar, sugar preparations and honey

1,330

1,435

1,133

1,284

1,363

np

Other

2,151

2,803

3,390

3,270

4,426

np

Other goods

9,253

9,443

8,155

7,886

8,694

8,249

Services credits

29,975

31,767

35,561

33,162

32,568

33,327

(a) Reference year is 2002-03.(b) Chain volume measures are not additive for most periods; the component measures do not sum to a total in the same way as the corresponding current price components do.

Source: Balance of Payments and International Investment Position, Australia (5302.0).

30.6 GOODS AND SERVICES DEBITS

1998-99

1999-2000

2000-01

2001-02

2002-03

2003-04

$m

$m

$m

$m

$m

$m

AT CURRENT PRICES

Goods and services debits

-126,456

-140,811

-153,205

-154,573

-167,169

-167,275

Goods debits

-98,430

-110,810

-120,524

-121,942

-134,278

-132,878

General merchandise

-94,392

-106,749

-116,165

-116,802

-128,645

-127,796

Consumption goods

-28,041

-30,781

-35,775

-37,422

-41,228

-42,921

Food and beverages, mainly for consumption

-3,606

-3,943

-4,483

-4,687

-5,067

-5,168

Household electrical items

-2,245

-2,456

-3,000

-3,166

-3,657

-3,795

Non-industrial transport equipment

-7,231

-7,735

-9,627

-9,930

-11,302

-12,326

Textiles, clothing and footwear

-3,739

-4,232

-4,811

-4,849

-5,237

-5,078

Toys, books and leisure goods

-3,184

-3,238

-3,359

-3,494

-3,740

-3,595

Consumption goods n.e.s.

-8,036

-9,177

-10,495

-11,296

-12,225

-12,959

Capital goods

-23,058

-26,895

-25,739

-27,208

-31,554

-32,003

Machinery and industrial equipment

-9,226

-8,912

-8,876

-9,502

-11,007

-11,060

ADP equipment

-4,496

-4,912

-5,260

-5,055

-4,908

-5,138

Telecommunications equipment

-2,812

-4,150

-4,379

-3,643

-3,619

-4,104

Civil aircraft

-649

-1,414

-609

-1,513

-3,887

-3,061

Industrial transport equipment n.e.s.

-2,863

-4,181

-2,940

-3,613

-3,881

-4,035

Capital goods n.e.s.

-3,012

-3,326

-3,675

-3,882

-4,252

-4,605

Intermediate and other merchandise goods

-43,293

-49,073

-54,651

-52,172

-55,863

-52,872

Food and beverages, mainly for industry

-758

-731

-592

-577

-736

-625

Primary industrial supplies n.e.s.

-882

-1,117

-1,133

-1,117

-1,220

-1,077

Fuels and lubricants

-4,428

-7,450

-10,358

-8,823

-10,393

-9,897

Parts for transport equipment

-6,085

-6,874

-7,089

-6,827

-7,258

-6,551

Parts for ADP equipment

-1,944

-1,936

-2,255

-2,159

-2,011

-1,812

Other parts for capital goods

-7,692

-8,008

-9,072

-8,216

-8,605

-8,559

Organic and inorganic chemicals

-3,139

-3,572

-3,777

-3,447

-3,089

-3,047

Paper and paperboard

-1,978

-2,207

-2,311

-2,225

-2,326

-2,242

Textile yarn and fabrics

-2,006

-1,987

-1,863

-1,830

-1,839

-1,579

Iron and steel

-1,470

-1,509

-1,437

-1,765

-1,960

-2,026

Plastics

-1,889

-2,037

-2,193

-2,182

-2,478

-2,179

Processed industrial supplies n.e.s.

-10,140

-10,772

-11,251

-11,441

-12,238

-12,044

Other merchandise goods

-882

-873

-1,320

-1,563

-1,710

-1,234

Other goods

-4,038

-4,061

-4,359

-5,140

-5,633

-5,082

Services debits

-28,026

-30,001

-32,681

-32,631

-32,891

-34,397

CHAIN VOLUME MEASURES(a)(b)

Goods and services debits

-129,310

-145,931

-144,087

-147,311

-167,168

-189,061

Goods debits

-98,735

-112,799

-111,597

-115,505

-134,278

-150,256

General merchandise

-94,123

-108,017

-107,040

-110,353

-128,646

-144,805

Consumption goods

-28,427

-32,003

-34,824

-35,943

-41,227

-46,823

Food and beverages, mainly for consumption

-3,710

-4,149

-4,533

-4,737

-5,066

-5,472

Household electrical items

-2,086

-2,354

-2,724

-2,905

-3,656

-4,348

Non-industrial transport equipment

-7,824

-8,320

-9,796

-9,664

-11,301

-12,965

Textiles, clothing and footwear

-3,876

-4,538

-4,709

-4,534

-5,236

-6,011

Toys, books and leisure goods

-3,126

-3,305

-3,104

-3,242

-3,739

-4,127

Consumption goods n.e.s.

-7,879

-9,379

-10,023

-10,892

-12,224

-13,900

Capital goods

-19,997

-24,869

-22,576

-24,563

-31,554

-37,605

Machinery and industrial equipment

-9,112

-9,037

-8,288

-8,760

-11,007

-12,276

ADP equipment

-2,272

-3,167

-3,383

-3,947

-4,908

-7,119

Telecommunications equipment

-2,386

-3,687

-3,831

-3,253

-3,618

-5,168

Civil aircraft

-712

-1,557

-605

-1,425

-3,887

-3,442

Industrial transport equipment n.e.s.

-2,981

-4,345

-2,878

-3,496

-3,881

-4,360

Capital goods n.e.s.

-3,190

-3,516

-3,558

-3,640

-4,252

-5,242

Intermediate and other merchandise goods

-45,998

-51,087

-49,838

-50,005

-55,862

-60,376

Food and beverages, mainly for industry

-625

-774

-725

-700

-736

-703

Primary industrial supplies n.e.s.

-897

-1,202

-1,116

-1,118

-1,221

-1,161

Fuels and lubricants

-9,823

-9,364

-9,232

-9,810

-10,393

-11,125

Parts for transport equipment

-6,433

-7,235

-6,888

-6,463

-7,257

-7,460

Parts for ADP equipment

-990

-1,260

-1,465

-1,699

-2,011

-2,502

Other parts for capital goods

-6,801

-7,688

-8,141

-7,522

-8,605

-10,373

Organic and inorganic chemicals

-2,965

-3,654

-3,378

-3,054

-3,088

-3,212

Paper and paperboard

-2,097

-2,374

-2,185

-2,077

-2,325

-2,513

Textile yarn and fabrics

-2,032

-2,115

-1,770

-1,743

-1,839

-1,818

Iron and steel

-1,548

-1,588

-1,460

-1,785

-1,959

-2,030

Plastics

-2,206

-2,431

-2,095

-2,054

-2,478

-2,491

Processed industrial supplies n.e.s.

-10,072

-10,957

-10,365

-10,640

-12,238

-13,529

Other merchandise goods

-852

-884

-1,216

-1,443

-1,710

-1,460

Other goods

-4,786

-4,794

-4,522

-5,173

-5,632

-5,452

Services debits

-30,893

-33,354

-32,690

-31,895

-32,892

-38,806

(a) Reference year for chain volume measures is 2002-03.(b) Chain volume measures are not additive for most periods; the component measures do not sum to a total in the same way as the corresponding current price components do.

Source: Balance of Payments and International Investment Position, Australia (5302.0).

Table 30.7 presents various price indexes for Australia's trade in goods and services. The implicit price deflators (IPDs) are derived by dividing the current price measures by the corresponding chain volume measures. These IPDs reflect not only price change, but compositional effects from year to year.

Unlike IPDs, chain price indexes measure only the impact of a price change. The chain Laspeyres price index for goods and services credits fell 4.1% in 2003-04 to 95.9. The fall resulted from a stronger Australian dollar in 2003-04. The chain Laspeyres price index for goods and services debits fell 11.1% to 88.9.

Australia's terms of trade (derived by dividing the IPD for credits by the IPD for debits) rose by 8.0% in 2003-04, resulting from a 4.5% fall in the IPD for goods and services credits and a 11.5% fall in the IPD for goods and services debits (table 30.7).

30.7 IMPLICIT PRICE DEFLATORS, PRICE INDEXES AND TERMS OF TRADE(a)

1998-99

1999-2000

2000-01

2001-02

2002-03

2003-04

Implicit price deflators(b)

Goods and services credits

87.3

89.8

101.9

102.7

100.0

95.5

Goods credits

87.1

89.6

104.1

104.2

100.0

93.7

Services credits

87.5

89.9

94.3

97.3

100.0

102.0

Goods and services debits

97.8

96.5

106.3

104.9

100.0

88.5

Goods debits

99.7

98.2

108.0

105.6

100.0

88.4

Services debits

90.7

89.9

100.0

102.3

100.0

88.6

Chain Laspeyres price indexes

Goods and services credits

86.6

88.7

101.3

102.2

100.0

95.9

Goods credits

86.4

88.4

103.3

103.6

100.0

94.2

Services credits

87.2

89.6

94.2

97.2

100.0

102.0

Goods and services debits

95.4

95.0

105.3

104.4

100.0

88.9

Goods debits

97.0

96.7

107.0

105.1

100.0

88.9

Services debits

89.8

89.1

99.5

102.1

100.0

88.7

Terms of trade(c)

Goods and services

89.3

93.0

95.9

97.9

100.0

108.0

Goods

87.3

91.2

96.4

98.7

100.0

105.9

Services

96.5

99.9

94.4

95.1

100.0

115.1

(a) Reference year for price and terms of trade indexes is 2002-03.(b) Derived by dividing the estimates at current prices in tables 30.5 and 30.6 by the chain volume measures in those tables.(c) Derived by dividing the IPDs for credits by the IPDs for debits.

Source: Balance of Payments and International Investment Position, Australia (5302.0).

International investment position

Australia's net international investment position is the difference between the levels of Australia's foreign financial liabilities and the levels of its foreign financial assets. Historically, Australia has had a net liability position with the rest of the world.

Australia's net international investment position at 30 June 2004 was a net foreign financial liability of $501.1b. This was up $50.4b (11.2%) on the position a year earlier and resulted from net increases of $14.1b in the level of foreign equity and $36.3b in the level of foreign debt.

Graph 30.8 shows the components of Australia's international investment position between 30 June 1994 and 30 June 2004. It shows that the increase in net foreign liabilities primarily reflects increase in net foreign debt liabilities.

Table 30.9 shows a reconciliation between opening and closing levels for foreign financial assets, foreign financial liabilities and Australia's net international investment position. Increases or decreases in these assets and liabilities are due to financial transactions (investment flows), price changes, exchange rate changes and other adjustments.

30.9 INTERNATIONAL INVESTMENT POSITION

Changes in position reflecting

Position at beginning of period

Transactions

Price changes

Exchange rate changes

Other adjustments

Position at end of period

$m

$m

$m

$m

$m

$m

NET INTERNATIONAL INVESTMENT POSITION

Total

2001-02

366,408

20,890

14,208

-3,208

79

398,377

2002-03

398,377

40,150

3,829

6,652

1,772

450,778

2003-04

450,778

47,062

10,724

-4,983

-2,435

501,146

Equity

2001-02

63,835

-16,859

16,701

12,496

-992

75,178

2002-03

75,178

-8,533

2,823

23,032

1,087

93,588

2003-04

93,588

-2,976

17,647

491

-1,093

107,656

Debt

2001-02

302,573

37,749

-2,492

-15,703

1,072

323,199

2002-03

323,199

48,684

1,005

-16,381

682

357,190

2003-04

357,190

50,038

-6,923

-5,474

-1,342

393,489

FOREIGN ASSETS(a)

Total

2001-02

-488,144

-53,802

46,553

11,981

50

-483,361

2002-03

-483,361

-32,287

4,518

20,255

-505

-491,378

2003.04

-491,378

-47,223

-31,086

-10,853

-2,741

-583,280

Equity

2001-02

-294,304

-43,874

48,135

12,496

-450

-277,999

2002-03

-277,999

-25,209

9,973

23,032

671

-269,533

2003-04

-269,533

-33,098

-19,209

491

-860

-322,210

Debt

2001-02

-193,840

-9,927

-1,581

-514

500

-205,363

2002-03

-205,363

-7,077

-5,453

-2,777

-1,175

-221,845

2003-04

-221,845

-14,125

-11,875

-11,344

-1,881

-261,070

FOREIGN LIABILITIES(b)

Total

2001-02

854,552

74,692

-32,345

-15,189

29

881,738

2002-03

881,738

72,437

-691

-13,604

2,276

942,156

2003-04

942,156

94,284

41,809

5,870

307

1,084,426

Equity

2001-02

358,139

27,016

-31,434

-

-541

353,176

2002-03

353,176

16,675

-7,148

-

418

363,121

2003-04

363,121

30,120

36,856

-

-232

429,866

Debt

2001-02

496,413

47,678

-910

-15,189

572

528,562

2002-03

528,562

55,762

6,458

-13,604

1,857

579,035

2003-04

579,035

64,163

4,954

5,870

539

654,560

(a) Assets include claims of Australian direct investment enterprises on direct investors abroad, which are classified as part of direct investment in Australia.(b) Liabilities include liabilities of Australian direct investors to direct investment enterprises abroad, which are classified as part of direct investment abroad.

Source: Balance of Payments and International Investment Position, Australia (5302.0).

Foreign debt

Foreign debt is a subset of the financial obligations that make up a country's international investment position. It includes all the non-equity components of the net international investment position, that is, all recorded assets and liabilities other than equity securities and direct investment equity capital, including reinvested earnings.

The level of borrowing and other non-equity liabilities of Australian residents at a particular date make up Australia's foreign debt liabilities. The level of Australian lending abroad and other non-equity assets at the same date are deducted from the level of borrowing to arrive at Australia's net foreign debt.

The level of net foreign debt at 30 June 2004 was $393.5b, up $36.3b (10.2%) on 30 June 2003. The increase during 2003-04 resulted from a $75.5b (13.0%) increase in foreign debt liabilities partly offset by an increase of $39.2b (17.7%) in foreign debt assets (table 30.10).

At 30 June 2004 the net foreign debt of the public sector (general government plus public financial and non-financial corporations) was $6.2b, which accounted for 1.6% of total net foreign debt. Net foreign debt levels of private financial corporations and private non-financial corporations were $314.0b (79.8% of total net foreign debt) and $73.2b (18.6%) respectively (table 30.10).

30.10 LEVELS OF FOREIGN DEBT - 30 June

1999

2000

2001

2002

2003

2004

$m

$m

$m

$m

$m

$m

Foreign debt assets(a)

-129,150

-144,186

-193,840

-205,363

-221,845

-261,070

Public sector

-40,770

-44,876

-63,432

-56,156

-55,869

-67,134

General government

-9,378

-9,219

-10,338

-10,869

-10,757

-9,996

Financial corporations

-30,470

-35,263

-46,151

-42,832

-43,377

-55,619

Central Bank

-22,883

-27,184

-37,040

-35,053

-37,641

-47,846

Central borrowing authorities

-385

-1,090

-1,426

-998

-568

-548

Other financial corporations

-7,203

-6,990

-7,685

-6,781

-5,168

-7,225

Non-financial corporations

-922

-393

-6,943

-2,455

-1,735

-1,519

Private sector

-88,380

-99,311

-130,408

-149,206

-165,976

-193,937

Financial corporations

-66,328

-75,689

-99,504

-120,990

-132,913

-158,818

Non-financial corporations

-22,052

-23,622

-30,904

-28,216

-33,063

-35,119

Foreign debt liabilities(a)

359,839

416,825

496,413

528,562

579,035

654,560

Public sector

75,279

63,413

69,255

67,912

64,840

73,346

General government

32,373

22,872

24,100

24,927

24,049

29,658

Debt domiciled abroard

2,176

1,567

1,453

1,573

1,557

1,314

Debt domiciled in Australia

30,197

21,305

22,647

23,354

22,493

28,344

Financial corporations

37,284

33,968

32,649

28,926

27,319

30,745

Central Bank

40

34

366

43

150

124

Debt domiciled abroard

-

-

317

-

-

-

Debt domiciled in Australia

40

34

49

43

150

124

Central borrowing authorities

32,772

29,060

27,622

24,906

23,955

27,171

Debt domiciled abroard

29,694

25,646

24,596

22,319

21,091

24,316

Debt domiciled in Australia

3,077

3,413

3,027

2,588

2,864

2,855

Other financial corporations

4,473

4,875

4,661

3,976

3,214

3,450

Debt domiciled abroard

4,473

4,875

4,492

3,976

3,214

3,366

Debt domiciled in Australia

-

-

169

-

-

84

Non-financial corporations

5,622

6,572

12,506

14,060

13,471

12,943

Debt domiciled abroard

5,463

6,340

12,012

13,521

13,036

12,112

Debt domiciled in Australia

159

232

494

538

436

831

Private sector

284,560

353,413

427,157

460,650

514,195

581,214

Financial corporations

209,734

269,917

328,001

365,419

408,215

472,852

Non-financial corporations

74,825

83,496

99,157

95,231

105,980

108,362

Net foreign debt

230,689

272,639

302,573

323,199

357,190

393,489

Public sector

34,509

18,537

5,823

11,756

8,970

6,212

General government

22,995

13,652

13,762

14,058

13,292

19,662

Financial corporations

6,814

-1,295

-13,502

-13,906

-16,058

-24,874

Central Bank

-22,843

-27,150

-36,674

-35,010

-37,491

-47,722

Central borrowing authorities

32,387

27,970

26,196

23,908

23,387

26,623

Other financial corporations

-2,730

-2,115

-3,024

-2,805

-1,955

-3,775

Non-financial corporations

4,700

6,179

5,563

11,605

11,736

11,424

Private sector

196,179

254,102

296,750

311,443

348,219

387,277

Financial corporations

143,406

194,228

228,497

244,429

275,302

314,035

Non-financial corporations

52,773

59,874

68,253

67,014

72,918

73,243

(a) Foreign debt levels between direct investors and direct investment enterprises are recorded on a gross basis for assets and liabilities.

Source: Balance of Payments and International Investment Position, Australia (5302.0).

Levels of foreign investment in Australia and Australian investment abroad

In table 30.11, levels of investment are categorised by direction (Australian investment abroad and foreign investment in Australia), type of investment (direct, portfolio, financial derivatives, other and reserve assets) and instrument.

Direct investment is a category of international investment that reflects the objective of obtaining a lasting interest by a resident in one economy in an enterprise in another economy, and implies a significant degree of influence by the investor in the management of the enterprise. A direct investment relationship is established when an investor, who is a resident in one economy, holds 10% or more of the ordinary shares or voting stock of an enterprise (direct investment enterprise) in another economy. The portfolio investment category covers investment in equity and debt securities other than direct investment, financial derivative assets, other investment assets and reserve assets.

The items Australian investment abroad and foreign investment in Australia in table 30.11 do not equate with foreign assets and liabilities respectively in table 30.9. The difference is due to netting of assets and liabilities in regard to direct investment, both abroad and in Australia. Debt claims by direct investment enterprises on their direct investors, separately identified in table 30.11, are netted off in that table against liabilities to direct investors. These items are not netted off in table 30.9.

At 30 June 2004 Australian investment abroad totalled $557.3b, up $91.8b (19.7%) on the level a year earlier. This rise was the net effect of a $27.9b increase in direct investment abroad, a $38.2b increase in portfolio investment assets, a $1.2b increase in financial derivative assets, a $15.0b increase in other investment assets and a $9.6b increase in reserve assets.

Foreign investment in Australia totalled $1,058.5b at 30 June 2004, up $142.2b (15.5%) on June 2003. This rise was due to a $16.7b increase in direct investment in Australia, a $126.6b increase in portfolio investment liabilities, a $5.2b decrease in financial derivative liabilities and a $4.1b increase in other investment liabilities.

30.11 LEVELS OF AUSTRALIAN INVESTMENT ABROAD AND FOREIGN INVESTMENT IN AUSTRALIA - 30 June

Source: Balance of Payments and International Investment Position, Australia (5302.0).

Ratios

Table 30.12 and graph 30.13 show the ratio of the current account deficit to gross domestic product (GDP) was 5.8% in 2003-04, an increase on the previous year, and above the average for the past 10 years (4.5%).

Graph 30.14 shows the ratio of Australia's net foreign liabilities (Australia's net international investment position) to GDP has risen for most years since 1994 and reached its highest level of 61.8% at 30 June 2004. The ratio of net foreign debt to GDP was 48.5% at 30 June 2004, an increase over the 47.2% recorded the previous year. The ratio of net foreign equity to GDP was 13.3% at 30 June 2004, up on the ratio at 30 June 2003 and above the average for the last 10 years (12.8%).

Table 30.12 shows the net investment income payable on net foreign debt as a percentage of goods and services credits was 8.5% in 2003-04. The ratio of net investment income payable on equity to goods and services credits was 7.4% in 2003-04, up from 6.4% the previous year.

30.12 RATIOS

1998-99

1999-2000

2000-01

2001-02

2002-03

2003-04

%

%

%

%

%

%

To GDP

Current account

-5.7

-5.2

-2.7

-2.9

-5.3

-5.8

Goods and services

-2.4

-2.3

0.1

-0.2

-2.5

-3.0

Credits

18.9

20.2

22.9

21.5

19.6

17.7

Debits

-21.4

-22.5

-22.8

-21.6

-22.1

-20.6

Income

-3.1

-2.9

-2.8

-2.7

-2.8

-2.9

Net international investment position(a)

54.3

52.5

54.6

55.8

59.6

61.8

Net foreign equity

15.4

9.0

9.5

10.5

12.4

13.3

Net foreign debt

39.0

43.6

45.1

45.2

47.2

48.5

To good and services credits

Net investment income

-16.4

-14.3

-12.1

-12.4

-14.2

-15.8

Net foreign equity

-7.0

-3.7

-2.6

-3.5

-6.4

-7.4

Net foreign debt

-9.4

-10.6

-9.5

-8.9

-7.8

-8.5

(a) These ratios are derived by expressing net foreign liabilities at end of year as a percentage of GDP at current prices for that year.

Source: Australian National Accounts: National Income, Expenditure and Product (5206.0); Balance of Payments and International Investment Position, Australia (5302.0).

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